Members weigh in on Governor's tax proposal

KFTC members and allies met today after the House Appropriations and Revenue Committee meeting. The committee heard the Governor’s proposed tax plan, which harkened back to the Blue Ribbon Commission's work in 2012 and 2013, and that he offered last week in the name of tax reform.

The Governor's proposal includes some good policies that are needed in Kentucky.  He’s proposed an Earned Income Tax Credit at 7.5% of the federal credit. That’s just half of the EITC included in both the Kentucky Forward Plan (HB 220) and the Blue Ribbon Recommendations, which both call for a 15% EITC.  A 7.5% credit would mean that families that qualify for the highest credit (earning just over the minimum wage, and with three or more children), would receive a credit of about $350. The average credit would be $171.6—not necessarily enough to qualify the measure as an anti-poverty tool, but a small step in the right direction.

But this measure isn’t enough to lessen the regressive nature of Kentucky’s tax structure, which asks a higher percentage of low- and middle-income Kentuckians than from the state’s wealthiest.

The Governor’s proposal also includes a sales tax expansion to services. Whereas the Kentucky Forward Plan proposes an expansion to services that would not carry impacts for low- and moderate-income Kentuckians, like limousine rides and chartered flights, the Governor’s proposal includes policies that are out-and-out regressive, like car repairs and farm machinery repair.

The inclusion of these policies is especially galling in light of the plan’s corporate tax breaks.

“We’ve got to step up and say, ‘Listen, the best commodity that we have is our people. That's why we need revenue--to invest in our people.'”

Currently, Kentucky taxes corporations using a formula that includes property, sales, and payroll taxes. This ensures—to a degree—that multi-state corporations pay their fair share of taxes in Kentucky for the services and infrastructure that help them grow the business. The Kentucky Forward Plan proposes strengthening corporate taxes by closing some significant loopholes. The Governor’s proposal, on the other hand, would move Kentucky to what’s called a Single Sales Factor corporate tax, which means that corporations would only pay taxes on what they sell in the state. This would be a big boon for multi-state organizations like YUM! Industries, costing Kentucky $154 million a year, and wiping out one-third of state corporate income tax revenue. The Governor’s plan would also offer significant tax cuts to the horse and bourbon industries.

The corporate tax cuts were included in the name of competitiveness. But members present at the hearing today question the strategy of cutting our way to the top. The plan only raises $210 million--not even enough to meet our state's pension obligations. (The Kentucky Forward Plan would raise about $860 million, by comparison, and the Blue Ribbon recommendations would raise around $650 million.)

Paul and JoAnn Schwartz of Northern Kentucky were among them. JoAnn asked, “What about the Forbes study that says that Kentucky is ranked 46^th in the availability of skilled labor? Why don’t we invest in that, build out from our people to create a more skilled workforce? We’re trying to make our state cheaper and cheaper.” Paul added, “We’ve got to step up and say, ‘Listen, the best commodity that we have is our people. That's why we need revenue--to invest in our people.'”

Learn more about the Governor's proposal from The Kentucky Center on Economic Policy:

• Measuring the Tax Plan Against Key Principles
• Tax Plan Misses Opportunity to Make Overall Tax System Fairer